RBS on brink of declaring victory in ABN battle

12:01AM BST 09 Oct 2007

Intriguing details are emerging about the protagonists and the hedge funds that put the Dutch bank in play, says Philip Aldrick

The Royal Bank of Scotland-led consortium will declare victory in the seven-month battle for ABN Amro before the end of the week, after its €71bn (£49bn) bid was overwhelmingly endorsed by the Dutch bank's shareholders.

The trio of RBS, Spain's Santander and Fortis of Belgium secured 86pc acceptances yesterday, clearing the way for a takeover. Fortis just needs to complete its €13bn rights issue, expected by Wednesday, for the consortium to make its offer unconditional.

Victory over Barclays, which withdrew its €61bn offer on Friday, comes despite fierce opposition from the ABN board and amid intriguing new details about both the protagonists in the battle and the hedge funds that put ABN into play.

Documents from the Dutch bank show ABN chief executive Rijkman Groenink suspected RBS chief executive Sir Fred Goodwin of acting in concert with hedge funds. At a meeting on January 9 between the heavyweights of European banking, Mr Groenink informed Sir Fred "ABN shareholder Tosca Holdings had met with him to recommend ABN merge with RBS". The document adds that Sir Fred "confirmed that RBS was not working with Tosca... or any other ABN shareholder".

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Nevertheless, the suspicion had been voiced. Sir Fred, who had called the meeting to suggest "combining the US operations of RBS with ABN's US retail and commercial banking activities", left with the clear message that "the US banking operations were not for sale", the documents state. Although the meeting is said to have ended cordially, three months later those very operations had been sold from beneath his nose to Bank of America.

Mr Groenink's suspicions about Tosca are easy to understand. Tosca is chaired by former RBS chairman Sir George Mathewson, its ex-chief operating officer is former RBS finance director Fred Watt and founder Martin Hughes was an RBS broker. But both Tosca and RBS made it absolutely clear they were acting entirely independently.

However, Mr Groenink's fears about the hedge funds were not unfounded. Within a month – on February 20 – TCI, the activist investor run by Chris Hohn, had written to Mr Groenink calling for the bank to be broken up. The letter was the catalyst for ABN's eventual sale but, behind the scenes, the hedge fund machinations had begun long before. Sources close to the sale say Mr Hohn's letter was the brainchild of Davide Serra, a former Morgan Stanley banking analyst. Mr Serra is said to have presented his case for a break-up to Mr Hohn in summer last year. A few months later Mr Hohn seed funded Algebris, Mr Serra's hedge fund.

In December, bankers noticed hedge funds building large positions on ABN's register and Mr Groenink began to worry. Those fears were realised when, at a meeting with Mr Hohn and Mr Serra in January, they asked him to break the bank up. Conspiracy theorists then seized on a January 11 note by Merrill Lynch's banks analyst Stuart Graham, which mentioned growing "shareholder activism" and illustrated ABN's value on a sum-of-the-parts basis. Merrill Lynch is RBS' adviser, though again there is no suggestion of collusion.

By then, Mr Groenink was convinced moves were afoot to break up the bank. He knew Santander was separately interested in certain units because, also in January, the Spanish bank and ABN had "engaged in preliminary discussions and negotiations regarding the possible purchase by Santander of discrete ABN businesses", the documents say.

So Mr Groenink began urgent conversations with Barclays, with whom he had first held discussions in March 2005, to orchestrate a white knight merger. However, it is understood that those very conversations led RBS and Santander to form the consortium, bringing in Fortis later.

ABN's merger with Barclays was announced on April 23, just 11 days after the consortium formally registered its interest, with what was widely perceived as an attempt to spike Sir Fred's guns. Catching everyone by surprise, ABN sold its US business LaSalle to Bank of America, in a move labelled in all quarters a "poison pill".

Sir Fred proceeded and the consortium is now just days from victory, cementing his reputation as one of banking's greatest dealmakers. Barclays, undermined by a collapsing share price in the credit crunch, had nowhere to turn and ABN investors dealt Mr Varley's ambitions a mortal blow. A bid begun by hedge funds had been decided by simple shareholder value.